On CNBC this afternoon (October 1, 2010), we get word that price of oil could go up another six (6) percent and/or we could even see double-digit increase in the price of oil in the near future. Or something like that; I forgot to write it down as it was being reported and now I'm writing from memory. The feeling is that a pick up in the global economy is accounting for the bullishness. [I understand that someone on CNBC's Fast Money today said oil could go to $100. These were the same guys that said oil was overpriced a few months ago, and that fundamentals suggested oil should be at $20. Entertainers, they are.]
In addition, Oil and Gas Journal's senior editor wrote yesterday that the 2.7 percent spike in the price of oil was most likely due to evidence of an improving global economy.
The evidence of an improving global economy? The government revised last quarter's US GDP slightly upward, from 1.6 percent to 1.7 percent. Give me a break. Does anyone really believe a) this number is reproducible; b) statistically significant; or, c) could affect the price of oil this much?
If so, wait until there's a real uptick in the economy.
Ah, but then it's the world economy that matters now, isn't it?...the torch has been passed from the Western world to India, China, Brazil, Indonesia, Vietnam, et. al. Oil is an international commodity that happens to be priced in U.S. dollars and, at the margin, which determines prices, it's world-wide demmand that matters.
ReplyDeleteYes, absolutely; once there is clear indication that the global economy has turned, the price of oil should move higher.
ReplyDeleteThe interesting thing is that Americans are so parochial (if that's the right word), they seem to forget there is a global economy. They only think about the US economy. And even the OGJ senior editor referenced the US GDP.
I will link a (London) Independent story later today that shows why oil may, in fact, be headed higher, and it has very little to do with US GDP going from 1.6 to 1.7.
The characterization of the Oil and Gas Journal article is inaccurate and misleading ... Drudge like.
ReplyDeleteThis is the entire lead paragraph of the article in the OGJ that I referenced:
ReplyDelete"The price of crude jumped to a new 7-week high Sept. 30 for the second consecutive day, up 2.7% in the New York market after the US Department of Commerce reported a slight increase in second-quarter growth of the nation’s gross domestic product."
It is what it is.
My point is this: I am extremely bullish on oil. I think the price of oil is greatly undervalued based on what we are seeing with regard to gold. The price of oil will rise quickly if there is a perception that the global economy is improving. The senior editor at OGJ seems to agree: a significant rise in price of oil based on a perception that the economy has improved. My gut feeling is that the OGJ senior editor and I are on the very same wavelength.
Thank you for the opportunity to clarify. And good luck to all. It has not been my experience to see price of oil to rise at the end of the driving season in the US; this recent reversal and 2.7% jump suggests something else is going on.
In this lead the writer cites an event sequence without saying anything like 'most likely due to'. He then cites many possible factors that may have influenced the rise ... declining petroleum inventories, declining unemployment that exceeded expectations, indications of economic strength in China, unrest in Ecuador that could curb production. Note that several of these point to factors outside of the US.
ReplyDeleteYou are correct.
ReplyDelete